Does California Require "Reasonable Care" In A Board's Selection Of An Expert?

Professor Stephen Bainbridge recently tackled the question of whether the business judgment rule applies to a corporate board's selection of an expert.   Section 141(e) of the Delaware General Corporation Law fully protects a director "in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the corporation by any of the corporation’s officers or employees, or committees of the board of directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation(emphasis added).  Professor Bainbridge notes that the highlighted language would seem to preclude the application of the business judgment rule to a board's selection of an outside expert.  He finds support for this proposition in Brehm v. Eisner, 746 A.2d 244, 262 (Del. 2000).

Section 309(b) of the California Corporations Code is similar to Section 141(e) but conspicuously omits the proviso that persons other than officers, employees, or board committees be selected with reasonable care.   The California statute was based on Section 35 of the Model Business Corporation Act, but California omitted the word “reasonably” before "believes" in each of the three numbered clauses.  California also added the qualifying phrase "after reasonable inquiry when the need therefor is indicated by the circumstance".   The reason for these changes was that some members of the Drafting Committees were concerned that the requirement that the director “reasonably believe” that the person being relied on was competent and merited confidence, would impose upon the director an independent duty of inquiry or investigation as to each of the officers, attorneys, accountants, or other persons upon whom he or she was relying.  The net result of these changes therefore is that a director has no independent duty of inquiry or investigation in the absence of suspicious circumstances.